What Does Interchange Optimization Mean for your Business?

How To Understand Interchange Optimization

What does interchange optimization mean for your business? Many businesses will gravitate toward easy-to-understand processing methods, such as Square. In using these companies, businesses try to ease away from the complexities of merchant processing methods. However, there are more complexities beneath the surface.

These merchant service companies offer a flat rate for every transaction making it remarkably easy to read a report. However, most businesses don’t realize that they’ve inadvertently increased their costs and efforts to simplify the ever-confusing credit card processing world.

We want to assist you in taking the mystery out of interchange optimization so that you can make informed decisions regarding your business. And we want to make sure at your point of sale, you bring home the most profit.

What Does Interchange Optimization Mean?

Interchange optimization, in simple terms, is a way for a merchant to limit processing costs by evaluating how sponsoring banks process your fees. Sponsoring banks include VISA, American Express or MasterCard. These sponsors have developed their own industry categories which in turn have their own processing rates. When a credit card purchase is made, the bank routes this to the interchange. This is then routed to the industry category which in turn assigns a rate and fee to the purchase.

In a real-world example, let’s say a customer uses a business credit card at your place of business. When the customer swipes their card, the bank that provided that customer the business credit card forwards your business the funds. Later, the bank collects payment from the customer. This is interchange.

Regardless of what your fees may be, each bank will process this transaction based on a variety of factors. These factors are such as whether the card was swiped vs. manually entered, if the card has a lower risk (such as a debit card vs. credit card), if the card offers rewards, etc. At times, transactions are downgraded. This means the card is routed to a more expensive rate during interchange.  Now your business, unfortunately, is charged more for that client’s business. 

How To Optimize Your Interchange Fees

The goal is to hit your category’s ideal rate or target rate.  Sometimes purchases will not meet target rates and your business will be assigned higher fees as the purchase will be downgraded to a more expensive category.  By optimizing your interchange, you save money by limiting and avoiding downgrades. 

A thorough review of your merchant processing reports will bring insight into whether or not your transactions often are being downgraded.  Typically, business-to-business merchants benefit highly from ensuring interchange optimization, though any business large or small may benefit.  This can be true savings of as much as 0.05% to 1.10% per transaction. 

From there, your merchant processing company should enter more information about your business. Once the necessary information is inputed into the system, you will receive lower rates through interchange optimization. You will notice a difference in your monthly statements. Your rate will change depending on which cards you are accepting each month.


If you have questions regarding interchange optimization, feel free and drop us a line. You can also check out a related blog article 'The Stuff You Need to Know About Interchange Fees.'